Lehman formula

The Lehman formula, named after its creator, economist Robert Lehman, is a method used to estimate the appropriate capital structure for a company. It suggests that a company's optimal capital structure can be determined by multiplying its total assets by a factor known as the "Lehman coefficient." The Lehman coefficient is a value between 0 and 1 representing the proportion of a company's total assets that should be financed by equity. The formula can be represented as: Equity = Lehman coefficient x Total Assets Using the Lehman formula, a company can determine the ideal mix of equity and debt financing that maximizes its value or minimizes its cost of capital. The coefficient considers various factors, including the industry in which the company operates, its risk profile, and the prevailing market conditions. It is important to note that the Lehman formula is a theoretical framework and should be used as a starting point for analysis, as actual capital structure decisions depend on various factors specific to each company.